This Week's Economic News has changed to This Week's Economic News. Why the change? There are personal reasons. I have been doing the daily news for about 9 months and frankly tired of it. Also, I hope to be opening my own law office within the next few months and I have to start thinking about time considerations. However, I also wanted to start looking at the markets and the numbers differently. I wanted to spend some time with various releases and get a bit deeper into the numbers to see what lurks below the surface. I also wanted to try and place these numbers in a bit more perspective if possible. From a market perspective, I wanted to provide a bit more analysis from a technical perspective - how the markets look over a longer time horizon and what some indicators are saying.
This is the end of the summer, which is traditionally a
very slow period for the markets. This week was no exception. The markets traded in a fairly narrow range this week. The QQQQ's traded in a 91 cent range, the DIA's a $2.55 range and the SPY's a $3.18 range. On Monday and Wednesday, all markets started strongly, but could not follow through. Opening rallies that fade indicate an underlying weakness because traders who are bullish will continue to bid-up shares. Instead, traders twice took their profits before the markets closed. Oil hung over the market all week. Whenever oil started to move up, traders started selling shares.
There were several pieces of important news for the bond market this week. The homes sales numbers were the first, as the decrease indicated a possible slowdown in the housing market. This news rallied the market on Tuesday. Secondly, the Treasury auctioned 20 billion in two year notes on Wednesday, and the foreign participation rate was 44%. This indicates that foreign central banks are still purchasing US debt instruments in sufficient quantity to finance the US trade deficit. From a technical perspective, the 10-year has rallied since the second full week of August. While the rally has technical upside, the possibility of further Fed rate hikes may act as a fundamental barrier preventing a strong upside move.
The main news in the oil market was Katrina, a storm that threatened gulf production all week. The gulf region produces about ¼ of US oil output. Any threat to this production concerns traders because oil supply is incredibly tight. Several other news items bolstered buyers this week. Ecuador is only producing at 80% because of internal conflicts. China announced its oil imports increased 5.4% for the first 7 months of the year. US gasoline inventories decreased 3.2 million barrels. The consensus estimate was for a drop of 1.1 million barrels. Levels are 7% below year-ago numbers. Friday's sell-off was more technically than fundamentally driven. Traders made solid profits during the week and wanted to take money off the table, especially with Katrina in play. Technically, there is upside to the oil market. However, it will probably take a sell-off to squeeze out some speculators before the market can make a more pronounced upside move.
As with other markets, the currency market is very slow this time of year. The dollar traded in a 1.20 yen range and a .0180 euro range, indicating lack of any fundamental news moving the markets in either direction. Forex traders have focused on the growth hand interest arte differentials between the US, Japan and Europe for the first half of this year. However, the Nikkei is near a 4-year high and recent numbers from Germany indicate a possible economic recovery. As a result, traders appear to be re-evaluating their trading strategies for the remainder of 2005.
Housing
The National Association of Realtors released the number of homes sold during July. The association breaks these numbers down into two categories. The first is the number of homes actually sold over the month nationally and regionally and second is the nationally projected annual total number of homes sold at the national and regional level. The markets focused on the 2.6% drop in the projected national total of sales. However, the year-over-year increase was still positive at 4.7%. The median price of houses sold nationally only increased $1000 from 217,000 to 218,000. At the same time, there was a 2.6% increase in inventory although the number of months of inventory available for sale increased slightly from 4.4 to 4.6.
The Census Bureau reported that sales of new homes and homes built for sale increased 6.5% nationally and 11.2% from last year's June-July period. However, this statistic is somewhat misleading. The West's and Northeast's sales figures jumped 35% and 10% respectively, whereas the South' and Mid-west's decreased 3.4% and 13.5% respectively. The jump in the West's number is the largest in the last 12 months. The second largest jump was 17.64% between September and October last year. This indicates this increase is most likely a 1-time event that won't be repeated in the coming months.
Durable Goods
New orders for durable goods dropped 4.9% between June and July. These orders increased 7.9% from April to May and 1.9% from May to June. Part of the drop is probably a result of the large increase between April and May when it appears that businesses started to stock-up on goods. Unfilled orders decreased 6.9% from June to July, which follows an increase of 9.9% from April to May and 2.3% from May to June. As with the overall durable goods, it is possible that some of this drop is from heady activity occurring during the preceding months.